Accurately Budgeting for Property Taxes

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As businesses begin crafting budgets for next year, many companies struggle with accurately budgeting for property taxes.

From fluctuations in tax rates to changes in a business's equipment or locations, many factors influence how much a company pays in business personal and real property taxes.

In this post, we'll discuss:

why budgeting for your commercial property taxes is important
factors to consider to formulate the most accurate budget
what services are available to help with your tax budgeting

WHY BUDGETING FOR PROPERTY TAXES IS IMPORTANT

Budgeting is essential at all times, but businesses may be struggling more through the pandemic. With tighter cash flow and continued uncertainty, businesses need an accurate estimate of their expenses.

Budgeting prevents overspending and getting into trouble when your tax payments are due. If you take the time to create an accurate budget, your business property tax bill won’t surprise you.

FACTORS TO CONSIDER WHEN CREATING AN ACCURATE PROPERTY TAX BUDGET

Many companies just add 5% to last year's taxes for their budget estimates. But this approach is not accurate or helpful. Taxes can be a significant part of a business's budget. Knowing what to expect can help you plan for the year ahead.

UPDATED TAX RATES AND APPRAISALS

Counties and other local taxing authorities adopt tax rates each year as a part of their budgeting process. Understanding the local economy and history of rate increases can guide your budget estimates. Companies should also consider any issues, like a vote on a school bond that would raise property taxes.

In addition to adopting tax rates, counties also perform property revaluations every four to eight years. Knowing when the county will reappraise your property also helps improve tax budget accuracy.

CHANGES IN MARKET CONDITIONS

Economic conditions and the real estate market in your area influence your taxes. If the market is hot and officials evaluate some of your property, your taxes could increase. But if real estate prices are dropping in your area, you could have a case to appeal to lower your appraisal.

PROPERTY PURCHASE OR SELL

Adding or changing locations or making renovations to your property can influence your taxes.

When budgeting for your business property taxes, be sure to include line items for new locations. Officials typically prorate taxes for the year to be paid at closing if you buy or sell property. If you're selling property, you'll probably have to pay your portion of the property taxes at closing. If you purchase property, you'll receive the seller's portion of the taxes at closing. You'll be responsible for the entire bill when it's due. If you plan to buy or sell property in the coming year, be sure to budget accordingly for taxes.

Businesses with multiple locations also need to budget for when taxes are due. Tax payment deadlines can vary by state or county.

RENOVATIONS

Are you planning to make any upgrades to your property? Improvements change the value of your property and can trigger a reassessment from the county. When you're planning to do something to increase the value of your property, budget for an increase in your tax bill.

EQUIPMENT CHANGES

Real estate taxes are only one part of your property taxes. In states that collect business personal property tax, you also need to budget for taxes on equipment and other taxable assets.

Business personal property is any asset you use to run the business. Examples of business personal property include:

Equipment
Furniture
Computers
Supplies

Removing equipment from service or buying new equipment can impact how much you pay in taxes.

Officials tax personal property according to depreciation schedules. The relevant taxing authority sets the schedule. In other words, you pay less in taxes each year until an asset reaches the floor of 25%. Understanding the depreciation schedule of every asset helps you create a more accurate budget.

GETTING HELP ACCURATELY BUDGETING FOR PROPERTY TAXES

Sharon H. Lyall, CPA, and staff have helped businesses add to their bottom line with innovative business property tax solutions for more than 20 years. We understand businesses need accurate budgets, especially in uncertain times. Our firm specializes in the complicated and often misunderstood area of business property taxes.

We offer tax budgeting and reviews to help clients create the most accurate property tax budget possible.

OUR PROPERTY TAX BUDGET REVIEW INCLUDES:

Analyzing the location and all of your properties
Reviewing property tax bills for the current year to make an informed estimate about what next year's bill looks like
Adjusting for any renovations, improvements, or changes
Building an accurate budget spreadsheet

After completing our analysis and your customized budget report, our team explains everything to you. Our goal is to eliminate any surprises when you receive your final tax bill.

If your tax bill looks significantly different from your budget estimate, you could benefit from a property tax assessment review. We offer these reviews to current and new clients, even if we did not help prepare your property tax budget.

We tell our clients to send us their assessment or bill right away to determine if everything aligns with their filings.